A wave of concentrated share buying has swept through China's A-share banking sector, with listed banks' management teams and state-owned institutional investors simultaneously stepping up their investment activities.
In July, this trend of share acquisitions by listed banks has entered a peak period. On July 20, Bank Of Shanghai Co.,Ltd. (SHSE: 601229) and Bank Of Nanjing Co.,Ltd. (SHSE: 601009) both disclosed new share purchase plans. The former involves a collective buy by management, while the latter features a long-term accumulation by a provincial state-owned shareholder. Around the same time, share purchase plans previously announced by several other city and rural commercial banks, including Changshu Bank and Ruifeng Bank, have been fully executed.
In the first half of the year, pressured by narrowing net interest margins and capital outflows to the technology sector, the A-share banking sector performed weakly, declining over 12% and seeing all stocks trade below their net asset value, pushing valuations to near-decade lows. However, the recent flurry of share purchases has coincided with a noticeable recovery in the sector during July, with improving market sentiment. The Shenwan Banking Index (801780.SI) closed higher on multiple days this month. On July 20 alone, the sector surged 2.32% with turnover exceeding 45.5 billion yuan.
Share Purchase Wave Continues
According to the announcement, the share purchase plan for Bank Of Shanghai Co.,Ltd. involves certain directors, senior executives, and mid-level managers, who will voluntarily purchase the bank's A-shares with a total value of no less than 15 million yuan using their own funds. The purpose is based on confidence in the bank's future prospects and recognition of its long-term investment value. The implementation period for this plan is six months, starting from July 21.
Looking back to the same period last year, the bank also launched a collective purchase by management. The fact that they are taking action again just one year later demonstrates the management's continued confidence in the bank's medium- to long-term operational stability.
Experts point out that share purchases by bank management convey three key signals. First, it shows that management clearly believes the current stock price is severely undervalued, and using their own money to buy shares is more convincing than verbal statements. Second, it aligns their personal interests with the bank's long-term development, especially against the backdrop of regulatory requirements to incorporate market value management into performance assessments. Third, it reflects management's confidence in the bank's solid fundamentals; only banks with robust asset quality and located in economically stable regions would motivate management to make such purchases.
The main buyer for Bank Of Nanjing Co.,Ltd. is its major shareholder, Jiangsu Transportation Holding Co., Ltd. (Jiangsu Jiaokong). This operation has a longer timeframe and involves larger capital, reflecting a strategic move by a provincial state-owned entity. According to the announcement, Jiangsu Jiaokong's previous round of purchases started in September last year and concluded in mid-July this year. Over nearly ten months, it consistently bought shares in batches with almost no extended pauses, ultimately increasing its stake to 15% without triggering a mandatory offer, using its own funds.
Building on this, Jiangsu Jiaokong has now committed to a new purchase plan over the next 12 months, planning to invest a minimum of 100 million yuan, with an implementation period nearly double that of Bank Of Shanghai Co.,Ltd.'s management plan.
Prior to the announcements from these two city commercial banks, several other city and rural commercial banks had already completed the execution of their purchase plans, with the scale of implementation far exceeding the sporadic, small-scale purchases seen in previous years.
For instance, Changshu Bank disclosed two shareholder purchase announcements in early July, showing that two local state-owned entities concentrated their buying between June and early July. Similarly, Ruifeng Bank's management team over-fulfilled its purchase plan, with seven core executives and other business heads participating. The original plan was to buy 2.47 million shares, but they actually purchased over 2.5 million shares, investing approximately 12.06 million yuan and completing the entire operation ahead of schedule in late June.
Other banks, including Sunong Bank, Qilu Bank, and Chongqing Rural Commercial Bank, have also announced the completion of their share purchase plans within the year.
Secondary Market Shows Signs of Recovery
Looking at the full-year performance, the banking sector has been one of the weakest performers in the A-share market this year. By the end of June, the Shenwan Banking Index had fallen over 12% year-to-date, significantly underperforming major indices like the CSI 300 and CSI 500. All 42 A-share listed banks were trading below their net asset value per share, with the sector's average price-to-book ratio around 0.6 times, placing it below the 10th percentile of its valuation range over the past decade.
Industry insiders note that market concerns have persisted over the continuous narrowing of banks' net interest margins and the asset impairment pressure from local government debt and real estate loans. This led to prolonged low trading activity in the sector, with individual stocks often experiencing irrational sell-offs.
However, entering July, as news of share purchases by multiple banks was released, sector sentiment showed a clear recovery, with trading activity picking up. The index closed higher on 11 trading days this month. On July 20, the Shenwan Banking Index rose 2.32% in a single day, with sector turnover exceeding 45.5 billion yuan. Several city and rural commercial bank stocks led the gains. The execution of purchase plans and a flight to safety may have been key catalysts for the short-term improvement in sector sentiment.
In contrast, even after this rebound, sector valuations remain at historically extreme lows. The forward dividend yields of many joint-stock and city commercial banks exceed 5%, significantly higher than the yield on ten-year government bonds and returns from ordinary bank wealth management products, highlighting their value as fixed-income-like investments.
Looking ahead to the second half of the year, experts suggest that valuation recovery in bank stocks will present structural opportunities rather than a broad-based rally. Large state-owned banks and high-quality regional banks may be the first to stabilize. The former benefit from their liability cost advantages and strong capital bases, while the latter benefit from improving regional economies and ongoing enhancements in credit asset quality.
They further explain that the potential for valuation recovery is supported by three factors. First, high dividend yields are particularly attractive in an environment of scarce high-quality assets, meeting the allocation needs of long-term capital. Second, if mid-year financial reports can confirm stable revenue and net interest margins, market confidence in the sector's fundamentals will strengthen further. Third, if policies aimed at resolving real estate risks and managing local government debt prove effective, they could alleviate the market's overly pessimistic expectations regarding banks' asset quality.
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